HLS is spot-on. Keeping home prices high is what most voters want, and making the majority of voters feel good is what politicians and their government employees will try to do, at almost any cost, especially in an election year.
Can the pols succeed? Probably not 100%, because there’s a lot of water to hold back. But whereas prices in Southern California probably should drop by at least 50% in a free market, they might drop by only 20-25% with concerted government action. And I predict that govt actions will progressively increase in scale and ferocity as prices go down another 5, 10, 15, 20, 25%.
This is a moment when I will temporarily go along with all the doomsayers on moral hazard, dollar exchange rates, and inflation. I hope a Chinese central banker makes a few warning bond sales that nip all these rescue programs in the bud, but I don’t see that as likely.
